The people with the most money pay the least for car insurance.
It’s not because they’re rich. It’s because — as a group — they tend to be better educated, married with children and have higher credit scores. Actuarial studies have long shown that people in those circumstances have fewer accidents and claims, making them a more affordable risk for insurers. “Everything that insurers do to come up with rates is based on the data that we can use to (pinpoint) specific characteristics” of a person to how they operate the car, says Stephen Weisbart, chief economist of the Insurance Information Institute, an industry trade group. “We have decades of data that show the people with good credit scores have smaller claims. It’s a good predictor.”
It may be if you believe that mathematics, statistics and financial theory can measure one’s ability to drive a car. Turns out many people don’t see or understand how what are basically numbers can be tied to a function that most believe is a matter of dexterity and focus.
The Consumer Federation of America is among them. In its latest report on auto-insurance premiums, the well-regarded nonprofit group lambasted insurers for what it believes are discriminatory practices that mainly harm low- and moderate-income drivers. In a study that builds on two past examinations of car-insurance rates, the group compared premium quotes for two hypothetical 30-year-old women in 12 cities using the websites of the Big Five in auto insurers: State Farm, Allstate, GEICO, Farmers and Progressive.
The woman were alike in that they had each driven for 10 years, lived on the same street in the same middle-income zip code and were looking for minimum liability coverage that each state required.
But here’s how they differed: One woman, a married executive with a master’s degree who owned a home and has never not been insured, had a blot on her driving record thanks to a no-fault accident. The group says it caused $800 in damage and occurred in the last three years. The other woman had a stellar, accident-free record, she was a single renter, armed with a high-school diploma and working as a receptionist. Her only blemish was a 45-day lapse in insurance coverage.
What CFA found was that in every case, the woman with the better driving record was quoted higher premiums from Farmers, GEICO and Progressive than the executive. In several cases, the CFA says, companies would not offer a quote to the good driver but gave one to the one with the accident on her record. State Farm was a big exception, offering better quotes to the good driver. Allstate was all over the board. (The insurance companies that did respond to requests for comment said the III comments on the industry were sufficient.)
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